Where Did All the Volume Go?

If you think the currency marketshave been on the quiet side lately, you're right.

Several big banks are reporting lower trading volume and lower FX profits, and CLS Bank, a forex settlement system, settled an average daily volume of $4.6 trillion in November, down from $4.66 trillion in October and $5.19 trillion in September. By some forecasts, trading volume will continue to shrink into 2013.

The culprit, say some experts, is lower volatility. But really it's a bit more complicated than that, says Tommy Molloy of FX Solutions.

"There are very big hands out there who have an axe to grind if the euro moves too far away from the mean," he told me. Asian central banks are buying the euro on dips, and the Swiss National Bank sells every euro rally, he says. At the same time, "dollar-yen, until recently, hadn't been able to break out of a broad lower movement."

Other factors that affect FX levels, like oil, have also been relatively stable, Molloy says. "When the outside influences are fairly stable, it's kind of hard to justify big moves in currencies. And when currencies aren't making big moves, it's hard to get people interested."

Unfortunately for forex dealers and banks, Molloy thinks the sluggishness could continue. But that doesn't mean you should lose interest, he warns.

"In my experience, when markets tend to contract and ranges tend to contract, they do so until they don't any more and then there'rs a bloody explosion," he told me. The shift, he says, can "make your eyes water."

And remember, even small moves can be profitable. Molloy ended our conversation quickly when the yen moved below a key level.